Corporate Upper Class
Taxes are an inevitable part of owning and operating organizations in the United States, but in the world of big business, tax breaks and credits are now easier to ascertain due to a change in Texas’ political climate.
One of the biggest tax benefits began in 2001 and evolved into Texas’ largest land and tax credit deal to date for the state. The Wal-Mart Distribution Center in Baytown was the beneficiary.
The Internal Revenue Service reported in 2004, it refunded 482,053 corporations in the U.S. Texas businesses received 34,446 of the total amount of tax refunds making it second only to California.
Tax credits don’t only come in the form of monetary refunds. They come in the form of land and lease deals between the government, school districts and large corporations. The past five years have been instrumental in the shaping of how large corporations, such as Wal-Mart, receive enormous tax benefits.
“This [Wal-Mart Distribution Center] is an import facility where we have merchandise brought in, and then from there, it gets sent out to stores all across that region,” Community Affairs Manager for Wal-Mart’s corporate office Keith Morris said.“The reason we chose Baytown and Chambers County was that we had worked with the state, county and even the local officials to try to have an area that was in an industrially developed location.”
Between 2001 and 2005, Wal-Mart, with representation from the Andrews and Kurth LLP law firm, was able to purchase four million square feet of land, which is more than twice the size of Reliant Stadium in Houston, from the U.S. Steel Corporation. The facility is located in the Goose Creek Independent School District by Farm Road 1405 and Spur 55. Wal-Mart then sold the lot to the Texas General Land Office for $100 million.
The deal is supposed to benefit the Permanent School Fund, money placed in an account by the Texas Legislature and set aside to aid public education. Wal-Mart, with the help of House Bill 3558 passed in 2001, was then able to work out an agreement with the GLO that allowed the retailer to lease the land back from the Permanent School Fund for 30 years.
Critics contend the new tax benefit deal is like selling your watch to Wal-Mart and then buying it back at more than double what it was worth, the same day.
“Wal-Mart, as the richest retail corporation in the world, should stand on its own financially and should not be subsidized by Texas or U.S. taxpayers in any way,” said Al Norman, founder of watch-dog group Sprawl-Busters and author of The Case Against Wal-Mart.“I find it remarkable that Texan taxpayers would underwrite the cost of this facility, which essentially is a significant money maker for Wal-Mart.”
The Senate passed House Bill 3558 on May 17, 2001. The bill allows the Permanent School Fund to generate revenue from the lease of land to businesses. The Wal-Mart deal amounts to almost a $70 million tax break for the retailer, based on the 2004 property tax rate, Norman said.
“As a result, the School Fund will be assured a substantial return on its investment and the land and building will be exempt from local government ad valorem taxation,” according to a March 2004 Andrews and Kurth LLP press release.“It is anticipated, however, that the equipment to operate the facility will add between $15 and $20 million to local property tax rolls.”
Wal-Mart is estimated to pay $2 million a year in inventory tax based on the current rates.
“Wal-Mart, in order to enter into this agreement, we had to commit to creating a certain number of jobs and we had to operate a facility of a certain space,” Morris said.“With a facility of this size, we’ve created about 600 jobs.”
The Wal-Mart Distribution Center offers close to 600 different logistics and trade-handling positions each starting at between $11 or $12 an hour, Morris said.
The four million square foot lot was farmland owned by the U.S. Steel Corporation and generated $6,000 in property taxes for Chambers County. Prior to its acquisition by the Wal-Mart Distribution Center deal, the terrain was designated as agriculturally tax exempt and unimproved farmland. Wal-Mart built the distribution facility in two phases, which began in 2001 and became fully operational in 2005.
Capital Appraisal Group appraised the lot for the Chambers County Appraisal District, in 2004 and valued it at a little more than $34.9 million, which was an estimated cost based on the inventory that the Wal-Mart Distribution Center reported it had on hand.
“Well, at first [the buy-back amount] was $80 million, and then we increased it to $100 million before we closed the deal because [Wal-Mart] moved immediately into the second phase of their construction,” Press Secretary for the Texas General Land Office Jim Suydam said. “We invest $100 million and we’re gonna earn $338 million back on it over 30 years.”
Because the property was built in two phases the lease payments are based on a blended rate. The Texas General Land Office and Wal-Mart agreed to sign a bond lease, which will increase the percentages owed by Wal-Mart to the GLO every five years. In the first five years, Wal-Mart will pay the lease based on a rate of 6.12 percent, which is almost $6.1 million per year. At the 26 to 30 year mark, the retailer will be paying rent based on 10.04 percent rate, which is approximately $10 million per year. The GLO estimates the Permanent School Fund will receive 7.22 percent of the total amount and $100 million from the sale of the property at the end of the lease term, which roughly totals $338 million.
“If the facility becomes vacant, there are still payments we have to make,” Morris said.
At the end of the lease agreement, between Wal-Mart and the General Land Office, the company has the option to buy back the property for $100 million or market value, whichever is greater, Suydam said.
In the past six years, Baytown and Chambers County senators and representatives have received a combined total of more than $10,000 from the Wal-Mart and Andrews and Kurth Texas Political Action Committees.
“It’s Wal-Mart’s belief that Baytown is for sale. It’s Wal-Mart’s belief that Texas is for sale to the highest bidder,” Norman said.“To do these projects [Wal-Mart] needs political support; to get political support they make these contributions. It’s part of the attitude in America, on the part of developers, that everything you see is for sale.”
Meanwhile, Alice Walton, daughter of Wal-Mart Founder Sam Walton, contributed $100,000 to Governor Rick Perry’s campaign for 2006. Perry also received $5,000 in campaign donations for 2006 from the Wal-Mart Political Action Committee and $10,000 from the Andrews and Kurth Texas Political Action Committee.
“The Walton Family are all worth about $20 billion each, they could easily fund this distribution center out of their checking account,” Norman said. “So why are tax payers subsidizing this project, which will put other businesses out of work?”
Prior to the year 2000, none of the representatives received campaign contributions from the Wal-Mart or Andrews and Kurth Texas PACs. But in the years leading up to the deal, representatives did begin receiving contributions – and they have ever since.
In these import facilities, we have them typically run by a third party, as opposed to the traditional distribution centers where we run and operate them, Morris said. The Wal-Mart Distribution Center reached an agreement in February 2005 to have the facility operated by and sub-leased to the Standard Corporation, a logistics company–whose CEO is Microsoft’s Bill Gates–and a division of UTI Worldwide Inc.
“The addition of Bill Gates as a principal, is just more confirmation that these people can pay their own way,” Norman said.“Make the parties involved pay their own way. I think the issue for the average citizen is: no public money should go into this project, these are billionaires running it. We don’t need welfare for billionaires.”
It is estimated that the Wal-Mart Distribution Center in Baytown will receive a $2 million tax break per year, making this deal the largest land tax benefit in the state of Texas. Meanwhile, Baytown, Chambers County and GCISD are left paying the property tax.
“Well, the reason [the Texas General Land Office] did it was because we made money on the deal,” Suydam said. “We invest on behalf of the Permanent School Fund, and our goal here is to make as much money on our investments as we can.”
© Copyright World Internet News 2006-07
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